One provision of H.R. 1319, the American Rescue Plan Act of 2021, which was signed into law yesterday, that potentially can impact a lot of employers, and that accountants, bookkeepers and business advisors need to be aware of can be found in Title IX, Subtitle F. This section was an amendment of the Senate covering what’s commonly referred to as ‘COBRA’ benefits continuation. This provision creates a tax credit that employers can use to help displaced workers keep their employer-sponsored coverage in place using the federal COBRA benefits coverage continuation rules, These provisions are effective from the start of the month after the provision becomes law through September 30, 2021.
To put it simply, the COBRA provision found in H.R. 1319 would let workers use COBRA continuation benefits without paying ANY premiums for the coverage. Normally, employers and insurers require workers to pay up to 102% of the full premiums to keep their coverage in place. While some employers may pay 60% or more of the premiums when they offer group health benefits while an employee is still working, when an individual loses their job, the loss of the employer contribution frequently means the cost of continuing benefits is too expensive. This provision hopes to change that for the former employees, at least on the short-term while the pandemic continues.
Because the provisions of the Act allow the former employee to continue coverage at No Cost to themselves, the employer can choose to use the COBRA tax credit subsidy to pay the insurance premiums which would have otherwise be paid by the former employee. Employers are not required to make use of the subsidy, but they must still cover the former employee’s insurance premiums ‘in full’ during the time frame set forth in the legislation.
It's likely that accountants, bookkeepers and business advisors will be asked by their employer clients to assist them with properly recording not only the expense of paying the full costs of former employee COBRA continuation premiums and making off-setting tax credit liabilities pending the final administrative provisions for how those tax credits will be taken, as well as assistance in reporting or other record-keeping associated with these provisions.
We can be almost certain that the administrative provisions of this tax credit subsidy will be like much of the original COBRA legislation, lengthy and complex. As soon as we have details, Insightful Accountant will strive to make you aware of those provisions.